How did the pursuit of mercantilism goals affect the relations between
nations?

How did the pursuit of mercantilist goals affect the internal economies of
countries?

Why did mercantilist countries establish colonies?

Why was Spain unable to hold her empire?

Why did the Seven Years' War lead to an imperial crisis for Britain?

What were Adam Smith's economic views and how did they affect the European
nations?

In addition, you should be considering the following issues:

Do nations today generally pursue a mercantilist or a free trade economic
philosophy?

Why does the United States have an unfavorable balance of trade year after
year, and how can it continue to do so?

What was the major defect in the theory of Mercantilism?

TEXT

In the years 1500-1775, European commerce was conducted according to the
principles of an economic philosophy known as Mercantilism, and out
of the application of this philosophy arose the sea-borne
empires.

According to the tenets of Mercantilism, a country should sell as much as it can,
and buy as little as possible. It then has a favorable balance of
trade in which other countries are in debt to it, and it can collect the
difference in cash -- gold or silver -- and save it up. The rulers of countries
trying to achieve a favorable balance of trade organized its economy to meet that
goal.

First, countries had to encourage the pooling and investment of capital in
profitable pursuits. Wealthy individuals, often with the participation of their
ruler would form what were called joint stock companies, in which
each participant would contribute a sum of money and would own a portion of the
company, and of its revenues, proportionate to the amount that he had
contributed. Governments would grant such companies special privileges. The
companies were granted limited liability, which meant that the
partners in a joint stock company could not be held responsible for any debt
greater than the value of the portion of the company they owned. Governments
would also grant such companies monopolies over certain industries
and commercial pursuits, and would protect their operations with armed force, if
necessary. They would also attract people with money to invest by exempting such
people from paying taxes on their capital gains. If a company
proved successful, someone who had originally invested the equivalent of $100,000
in the company might find that he could sell his "share" of the company to
someone else for $250,000. That $150,000 difference would be his "capital
gain".

That was not the end of it, however, the governments of mercantalist countries
tried to keep the wages of their working class as low as possible. This kept the
costs of their export goods low and, just as important, keeping the consumption
of their own population to a minimum so that a greater portion of the country's
total production would be available for sale by export. They also kept the prices
of foreign goods artificially high through tariffs, taxes paid by
anyone attempting to import foreign goods for sale, or even
embargoes that made it illegal to import certain goods or to import
goods from certain foreign countries. This had the hidden benefit of encouraging
smugglers, people who attempted to sneak such goods past the
government agents and sell them at market value. The smugglers developed fast
ships and personal cunning that were valuable to a country in case of war at
sea.

The joint stock companies of mercantilist countries attempted to establish
colonies that would produce cheap raw materials and foodstuffs to ship back to
the mother country. These companies would sell foodstuffs and other consumer
goods at high prices, thus making a profit from the general population, and using
the raw materials to produce their own trade goods as cheaply as possible. They
would not allow their colonies to develop their own local industries, and sold
them goods from the mother country at inflated prices. Neither would they allow
them to develop their own shipping, at least for shipping to the mother country,
and the companies developed what were, for the day, valuable merchant navies
through their monopolies of shipping to and from their colonies.

Of course, it was just as profitable for mercantilist countries to smuggle goods
into another country's colonies, and countries being abused in such a fashion
often responded by issuing letters of marque, official documents to
private individuals allowing them to seize foreign ships engaged in smuggling and
to sell them, often to the government that had issued them the letters, for a
profit. Such privately-owned fighting ships, often themselves captained and
manned by smugglers, were called privateers and played an important
role in the battle for colonies and control of the sea-lanes.

In the beginning, spices were flowing into Portugal and, soon after, gold and
silver into Spain. Neither country could hold on to its advantage, however.
Portugal expended much of it wealth in fruitless attempts to conquer Morocco and
was soon taken over by Spain. For its part, Spain poured its treasure into
fighting the Turks, gaining control of Italy, and attempting to keep control of
the Netherlands, which, at the time, included modern Belgium. Even
apart from this, Spain failed to invest its windfall wealth from the New World in
building a manufacturing capacity sufficient to construct its own navies and
supply its own colonies. Part of this was no doubt due to the fact that 2% of the
population, the nobles, owned 90% of the country's landed wealth and looked down
on commerce and manufacturing as menial. There were not a sufficient number of
men of wealth to form the joint stock companies and joint ventures that began to
arise in other countries. Spain and Portugal did not completely accept the
competition-based mercantilist economic model and used their wealth to hire
armies with which they hoped to enforce a political unity on Europe by force.

They saw no problem in buying the needed supplies from foreign countries, and so
English cloth, tar and pitch, and iron-goods were soon flowing into Spain in
exchange for Spanish gold; the shipyards of the Netherlands grew to be the
greatest in western Europe, using timber imported from Germany and Sweden, cannon
made in France, and manned by Swiss and Flemish marines. As the sixteenth century
progressed, the economies of the countries of northwestern Europe flourished
while Spain found that shipments of gold from the Americas were beginning to
dwindle. The privateers of other nations had begun smuggling needed goods into
the Spanish colonies.

By the mid-1500's, the situation had worsened. Spain had absorbed Portugal and
was engaged in on-again-off-again wars with all of those countries which it had
strengthened by its economic dependence on them. The Protestant
Reformation, a rift in the Catholic Church that had up to then included
all of the Christians of Western Europe, had led to armed conflict. Spain
attempted to restore religious unity to Europe by forcing Protestant countries to
return to obedience to Rome. This Age of the Religious Wars lasted
until 1648, and altered the balance of power in Europe considerably. The
Netherlands, which had been possessions of Spain, broke away and formed the
Dutch Republic, England joined the Protestant group, and France, although
remaining Catholic (after a bitter civil war), began to challenge Spain for power
on the Continent.

Although the attention of history textbooks seems focused upon these great
continental conflicts, the conflict was worldwide. The Dutch navy quickly seized
the chain of coastal stations that it had taken the Portuguese a century to
construct, and soon controlled the sea-lanes all the way to the East Indies,
China and Japan. The English and French soon built their own chain of stations
and concentrated on opening up India as a market rather than simply a supplier.
All three nations noted the demand for African slaves in Brazil and the Caribbean
and soon established a regular and increased trade in human chattels. Dutch,
English, and French privateers were soon raiding Spanish shipping around the
world, but this activity was nowhere so great as it was in the Caribbean. In
time, these "freebooters", usually operating with their government's tacit
approval, shifted from seizing Spanish cargo ships and began hunting down the
yearly convoys by which the Spanish transported gold and silver from the Americas
to the mother country.

The most famous of these raiders, Sir Francis Drake, beat out his
competitors by not waiting for the gold fleets to sail, but attempted to seize
the gold before it was loaded. He captured and plundered Cartagena, the capital
of the Spanish Main, and went on to capture the gold shipments from Peru as they
were being carried across the Isthmus of Panama on their way to the gold
galleons. Spain grew steadily weaker and was eventually no longer able to protect
her overseas discoveries.

By the early seventeenth century, trading companies of Spain's opponents took
control of some of the Caribbean islands and established colonies elsewhere.
France laid claim to what is now Canada and began a far-flung trade with the
inhabitants for furs that Europe craved, the Dutch established their colony at
what is now New York and developed an extensive and profitable fur
trade with the interior of the continent via the Hudson River, the Swedes
settled on the shores of Chesapeake Bay, the Scots in what is now the Central
American republic of Belize, and the English all along the eastern coast of North
America.

By the early eighteenth century, the Dutch, French, and English dominated the
world's sea-lanes. Throughout the next fifty years, these nations developed the
mercantile empires in the fashion we have already described. It was perhaps
inevitable that these three should contend for supremacy, but in 1756-1763, the
French and English clashed in what is known in European history as The
Seven Years' War and as The French and Indian War in North
America. It was the first truly global conflict, and English and French fleets
and armies clashed in places far removed from Europe. Although the British were
victorious and managed to establish their complete control over trade with India,
both the British and French were exhausted and their treasuries almost empty. The
British government decided that British armies had fought to protect Britain's
colonists from French domination, so it was only fair for those colonists to pay
taxes as their share of the cost of the war. The colonists were well aware that
they had been controlled and their development restricted by previous British
governments so that Britain might gain as much profit from as them as possible.
The North American colonists argued that, if they were to pay "their share" to
defend Britain's empire, they should enjoy "their share" of the benefits of that
empire. The British government refused them the full rights of English citizens,
the colonists refused to pay the taxes demanded of them, and, in 1776, the
colonists declared that they were now independent of British control.

In that same year, Adam Smith, a British political economist, wrote
one of the most influential works of his time, The Wealth of
Nations. Like other influential works, this was based upon the
Realist view of the world, that things are controlled by laws that
are not subject to human management. More specifically, he argued that economics
-- trade and commerce -- are governed by natural laws, and that all human
attempts to manage trade and commerce can do is interfere with the natural course
of economic development. Moreover, he held, if those laws were allowed to operate
without interference, a rational economy would emerge that would be more
productive and equitable than anything achieved by the application of
mercantilist principles. Although it took some time, most governments adopted
this view and adopted Free Trade, the idea that trade and commerce
should not be subject to governmental control except for the essential element of
producing a modest revenue. Many governments adopted the same philosophy for
their internal economies in the form of laissez-faire economics.
This French phrase means, more or less, "let it work", and was the basis of
governments refusing to regulate business and refusing to let workers attempt to
regulate it through trade unions and collective bargaining. Although this soon
led to a disaster, most governments continued to apply this principle with only
minor modifications.

Meanwhile, the American Revolution against England was only the first of a wave
of colonial revolts. By 1825, the European powers had lost their sea-borne
empires and had begun to construct new empires based upon free trade and made
possible by the steam engine, quinine, and rapid-fire cannons.

ASSIGNMENTS

REQUIRED ASSIGNMENTS

The era of the Sea-borne empires includes four periods of European History, and
you should become acquainted with each: the
Renaissance, the
Reformation, and the
Age of Religious Wars. We will cover the age of the Enlightenment in a
separate set of assignments.

RECOMMENDED ASSIGNMENTS

There are a great number of fine sites to visit, too many to recommend to you in
the limited time you have available, so I will suggest only one for each of the
periods I have mentioned. You should visit the Table of Contents of the Vatican
Library exhibit entitled
Rome Reborn. This is not only a very fine site, but an historic one as well.
It was the first major exhibit made available through the World-Wide Web, back in
1994. There are several sites for the Reformation, most of them denominational.
The life of
Thomas More has been put up by the Roman Catholic College of Maynooth,
outside of Dublin, Ireland. Although it is rather uncritical, it provides the
best picture of one of the most widely admired figures of the Reformation era.
The Age of the Religious Wars may be represented by a site dedicated to the story
of
The Spanish Armada. Although a K-12 presentation, you should find it
informative and enjoyable.

Just as an opportunity for you to do a bit of surfing, I might recommend three
sites to look at in your spare time.
Mutiny on the HMS Bounty discusses an actual event that has spawned several
motion pictures and novels.
Wichamstow Village portrays village life in Early Modern England, and
Le Poulet Gauche allows you to visit a Paris tavern and to meet the people of
its neighborhood.

This text was produced and installed by
Lynn H. Nelson, Department of
History, University of Kansas.